For banks operating under the Banking-as-a-Service (Baas) model, what started as a source of added fee income and access to lower-cost deposits has become a test of balance sheet resilience. Sponsor-bank partnerships have evolved to support a wider range of deposit products, often with higher rates and increased competition, leading to more concentrated, correlated flows.
FinTech deposits can move fast, concentrate heavily, and often fall outside a bank’s traditional relationship base. That combination of speed and unpredictability has made balance sheet control, rather than product innovation, the defining challenge.
The pattern is consistent across institutions: volume isn’t the problem; volatility is. FinTech programs can deliver significant funding, but these deposits behave very differently from traditional bank deposits. As a result, sponsor banks seeking to scale will need liquidity management frameworks and tools to add balance sheet flexibility and resiliency that they can leverage to effectively manage the business and demonstrate controls to relevant stakeholders and examiners.
Why Balance Sheets Are Now Front and Center
In 2024, the Synapse event froze roughly $265 million in end-user deposits across several sponsor banks. It exposed the fragility of specific omnibus account structures and the challenges of reconciling ownership across multiple ledgers.
Under the FDIC‘s proposed Part 375 recordkeeping standards for custodial accounts, banks must maintain the data necessary to quickly and accurately identify and verify each depositor’s ownership interest.
These changes are designed to improve depositor trust, and through each enforcement action, banks can gain clearer guidance on regulatory compliance. Examiner expectations have effectively become the roadmap. Every consent order now reads like a guide to what sound FinTech partnerships should look like.
The challenge for sponsor banks is demonstrating control over balance sheet growth, even when they do not control the FinTech’s end-customer behavior.
Why FinTech Deposits Are Unique
Many FinTechs use different metrics to evaluate customer stability and value, such as app usage frequency and duration, network effects, and in-app conversion rates, rather than bank-centric metrics like rate sensitivity, relationship depth, and account-level profitability. These balances can surge or disappear within days, leaving banks to manage sudden liquidity gaps.
Regulatory analyses, including Castellum AI’s 2024 BaaS Enforcement Analysis, indicate that banks engaged in BaaS under enforcement actions have reported lower profitability and higher liquidity strain compared to their peers. This gap reinforces the point that while BaaS programs offer significant growth opportunities for banks, they must be implemented in a compliant manner, with a strong foundation in place that fosters stability and transparency.
Recurring Pain Points:
R&T has heard the same issues from partner banks across exam cycles:
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Concentration and volatility: Heavy exposure to one or two FinTechs amplifies liquidity swings and limits balance sheet flexibility.
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Recordkeeping and ownership clarity: Sub-ledger gaps and delayed reconciliation slow audits and reduce examiner confidence.
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Brokered-deposit classification: Unclear deposit rules make it harder for banks to plan funding and report risks accurately.
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Operational resiliency: Complex operating models combined with insufficient failover procedures and data access rights hinder resiliency efforts.
These problems point to the same core principle: FinTech deposits need to be managed with the same structure and transparency as traditional funding sources.
Strategic Levers for Stability
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Managing Concentration
Banks that diversify FinTech balances across multiple insured institutions are better positioned to absorb partner-specific volatility. Reciprocal deposit programs provide that diversification while preserving the end-customer experience. This helps convert concentration risk into managed, measurable exposure.
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Building Examiner Confidence
Many sponsor banks have consolidated account onboarding processes and ledgers to a single platform or, at a minimum, established a single process for the BaaS business line that reconciles to their core banking system. This reduces complexity and provides the transparency and reconciliation procedures examiners expect. In addition, leveraging deposit networks to manage deposit growth and concentration risk further demonstrates a bank’s ability to support a BaaS line of business at scale without compromising the firm’s liquidity management strategy.
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Improving Operational Resiliency
As the BaaS market continues to mature, banks have taken concrete steps to improve operational resiliency. By streamlining systems, they have improved transparency with real-time or near-real-time access to ledgers and transaction logs. In addition, many banks have implemented strategies to improve segregation and accounting of customer accounts on sub-ledger systems to improve traceability. These enhancements have been supported by stronger legal contracts that provide greater clarity regarding roles and responsibilities, as well as stronger governance.
R&T Network Deposits for BaaS Banks
While the concept of partner banking is not new, what has changed is the increasing participation of non-financial institutions operating at scale and expanding their service offering. This, combined with newer business models, advanced technology, and reduced friction, has increased regulatory scrutiny surrounding BaaS-FinTech partnerships.
The Demand Deposit Marketplace®(DDM®) program, administered by R&T, provides customers access to up to $60 million in deposit insurance coverage per eligible depositor (for example, based on TIN), provided by participating insured institutions and subject to program terms and applicable regulations.1 For banks, having the ability to retain valuable reciprocal deposits or send excess balances into the network allows them the flexibility to retain large-dollar balances, manage concentration, and demonstrate stable funding and diversification without disrupting FinTech flows.
This balance sheet flexibility, combined with transparent recordkeeping and daily reporting, provides partner banks with complementary capabilities to help scale their BaaS programs. With a long history of success, banks can feel confident that the DDM program aligns well with internal risk and compliance requirements and can help satisfy examiner expectations regarding liquidity risk management.
The Future of BaaS Banking
The fastest integrators and the flashiest FinTechs won’t lead the future of BaaS growth. Banks that can handle FinTech funding volatility will be at the forefront.
With new FDIC custodial-account requirements expected to take effect in 2026, the cost of waiting is rising. Banks that align innovation with examiner expectations will set the standard for responsible partner banking.
Traditional community banks are already watching and learning from this transition. They see the same pressures in their own networks, large-dollar accounts, third-party relationships, and concentration risk. The same tools that stabilize BaaS funding can also strengthen their balance sheets.
With the passage of the GENIUS Act in 2025 and new FDIC custodial-account requirements expected to take effect in 2026, there is a regulatory tailwind supporting partner banking and greater clarity regarding compliance. For bank executives, this opens a range of new growth opportunities, but without the proper infrastructure in place, it also increases risk. Given the rise in industry competition and the speed of adoption, successful firms will have to calibrate the appropriate level of upfront investment required to compete and scale in a compliant manner, at the risk of being early, while recognizing that the cost of waiting is also rising. Banks that align innovation with policies, procedures, and capabilities that meet examiner expectations will set the standard for responsible partner banking and become the preferred choice for FinTechs and consumer brands.
Proposed legislation like the Keeping Deposits Local Act (H.R. 3234), introduced in 2025, would raise current caps on reciprocal deposits treated as non-brokered (currently 20% of liabilities or $5 billion) to tiered thresholds based on bank size, giving community and mid-sized banks more flexibility to retain large insured deposits without brokered classification strain.
Progress in BaaS will depend on pairing innovation with discipline. The banks that can do both will shape how FinTech partnerships mature over the next decade.